Reversal of fortune for stocks

Shares tumble, giving up early gains

JulieRannazzisi

NEW YORK (CBS.MW) -- Stocks plunged Tuesday, finishing near session lows as techs got whacked amid escalating worries over profit growth. The Nasdaq saw its lowest close since the post-Sept. 11 selling spree.

"The bottom line is that we're in a bear market and rallies are sold into. Whether it's the weak dollar, disappointment over the pace of growth or valuations, it's all coming together to keep pressure on the market," said Peter Boockvar, equity strategist at Miller Tabak & Co.

"Quarter-end window dressing is also coming into play. You're seeing a lot of churning. Fund managers are booking profits in sectors that have done and there's continued malaise in those that have not performed well," Piskorowski said.

Volume came in at 1.48 billion on the NYSE and at 1.87 billion on the Nasdaq Stock Market. Market breadth turned negative, with losers taking out winners by 18 to 14 on the NYSE and by 21 to 13 on the Nasdaq.

Fed statement awaited; confidence dips

With no one on Wall Street expecting the central bank to budge on rates -- and some predicting no tightening until November or even until next year -- it's the statement released at the conclusion of the meeting that'll draw attention.

Investors will be hanging on every word to get a hint of how the Fed's perception of the economy has changed since its May 7 gathering. See the related story.

Bridgewater Associates points out that the Fed does not tighten aggressively early in expansions.

"The Fed maintains easy monetary policy well into recoveries, which supports expansions in their infancies. The Fed tightens aggressively near the end of expansions when capacity becomes constrained and inflation pressures become apparent. We think this is very unlikely to play out over the next twelve months," money management and research firm Bridgewater concluded.

Meanwhile, more evidence emerged that consumers wavered over the past weeks.

The consumer confidence index, in fact, fell to 106.4 in June from May's 110.3 but was higher than the 105.3 reading that had been expected by most economists. The expectations and current conditions sub-indexes also backpedaled. See full story.

"This number provides some relief to recent [worries] that consumer attitudes were retrenching sharply, owing to the earlier released [University of Michigan] consumer sentiment figures. Given that the labor market is showing some stabilization recently -- a fundamental determinant of consumer confidence -- consumer attitudes appear more favorable than earlier feared," observed Mat Johnson, economist at Thomas Weisel Partners.

In other economic news, May existing home sales slipped 0.3 percent to a 5.75 million rate, more than the 5.69 million rate that had been anticipated. See the story.

"The modest decline in existing home sales puts us on track to smash the old sales record set in 2001. Housing has sustained growth and should continue to do so. Spending on housing related products starts to accelerate between six and nine months after the rise in home sales. But the equity markets are not in good shape and the Fed cannot discount the negative impact an uncertain market could have on consumer behavior," commented Joel Naroff, chief economist at Naroff Economic Advisors.

DuPont rallies; Amazon slides

DuPont
DD, -4.11%
added 0.3 percent after upping its second-quarter earnings estimate to between 64 and 67 cents a share vs. the previous estimate of about 55 cents a share. The chemicals giant cited higher sales across most of its segments. See full story.

Boeing
BA, -0.40%
was another Dow stock on the move, rising 0.3 percent after winning a contract worth up to $2 billion.

KB Home
KBH, +1.35%
tumbled 4.1 percent after rising early on following second-quarter earnings that surpassed analysts' expectations by a mile. Further, the homebuilder upped its earnings-per-share outlook for the year thanks to the favorable housing environment, especially in California.

In analyst actions in the retail sector, Merrill Lynch upgraded Reebok
RBK
to a "strong buy" rating from a "neutral" on belief the sporting goods-apparel maker will achieve its financial targets. Still, sharers shed 0.4 percent.

Kroger
KR, -0.35%
erased 1 percent, giving up morning gains that came after the supermarket chain posted first-quarter earnings that cruised past the Wall Street estimate. The company also stood by its earlier earnings projections.

Online bookseller Amazon.com
AMZN, -0.89%
tumbled 12.4 percent after Buy.com began a price war with the company. Buy.com announced Tuesday that it would offer all of its book titles at 10 percent below Amazon's prices as part of an aggressive strategy to win customers and capture greater market share in online book sales.

FedEx
FDX, -0.34%
slid over 14.3 percent after warning that first-quarter profits would fall short of Wall Street's current estimate, even as it cruised past four-quarter targets. For fiscal 2003, FedEx said it was comfortable with current earnings estimates. Read the story.

In the energy patch, Dynegy
DYN, +0.92%
fell 9.9 percent following S&P's move to lower its credit rating on the stock to a notch above speculative-grade status, reflecting the company's $2 billion capital plan, which was announced on Monday. Fitch lowered Dynegy's rating to junk status on Monday.

Cytyc Corp.
CYTC
cratered 40 percent after announcing that the Federal Trade Commission had blocked a major acquisition. Adding to the dour tone was a second-quarter and full-year profit warning from the medical diagnostics firm. See the story.

Chip, hardware issues retreat

Intel's 5.2-percent slump stifled the chip sector
SOX, -0.35%
with equipment makers also getting a mixed review from investors. Novellus Systems
NVLS
for one, erased 5.1 percent, though Merrill Lynch said in a research report that it believes the company is "on track" to meet its order outlook for the second quarter.

Among other chip stocks, Motorola
MSI, -0.21%
lost 1 percent after Moody's Investors Service lowered its rating on the stock because of operating pressures and protracted recoveries in the markets Motorola serves, among other reasons. And Advanced Micro Devices
AMD, -3.04%
declined 3.7 percent even after an upgrade from Prudential to a "buy" from a "hold" rating.

But Micron Technology
MU, +1.63%
edged up 0.2 percent even after Robertson Stephens trimmed its forecasts for the chip company on expectations it will offer a cautious tone on the state of PC demand. Further, Back of America Securities said it would remain neutral on the stock despite improved valuations pending an improvement in PC demand.

Hardware stocks receded, with Dow company Hewlett-Packard
HPQ, -0.23%
off a lofty 5.7 percent after Goldman Sachs' Laura Conigliaro lowered fiscal 2002 and 2003 estimates on the stock due to weakening in the IT spending environment. Fellow Dow stock IBM slumped 1 percent.

Standard & Poor's lowered its credit rating on storage company EMC
EMC, -1.87%
to reflect ongoing profitability pressures as a result of a slump in customer demand. EMC shares fell 3.7 percent.

Lucent Technologies
LU
tumbled 13.6 percent after witnessing a downgrade from Morgan Stanley to an "equal weight" from an "overweight" on a lack of near-term catalysts for the stock. The brokerage also lowered its view on the networking equipment industry to a "cautious" stance from its previous "in-line" view, citing challenging fundamentals, including weak demand and lower carrier spending.

The dollar weakened against the major currencies a day after the Bank of Japan intervened to prop up the U.S. currency and stem the yen's advance, which is believed to be hurting Japan's recovery prospects.

Cornering the rates, the dollar edged down 0.3 percent to 121.25 yen while the euro edged up 0.8 percent to 97.85 cents.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.